The War in Ukraine, higher inflation, tighter financial conditions, economic decelerations of key trading partners, and social discontent may dim growth prospects for Latin America, the IMF announced Tuesday (April 26).
IMF Director of of the Western Hemisphere Department Ilan Goldfajn outlined the key findings to media with the release of the Western Hemisphere Department’s Regional Economic Outlook.
“The region is hit by one inflationary shock on top of another, the poor will be hit the hardest. Higher inflation is affecting real incomes in Latin America, especially among the most vulnerable. Policymakers are reacting to this challenge by tightening monetary policy and implementing measures to soften the blow on the most vulnerable and contain the risks of social unrest,” said Goldfajn.
Even before the war, the region’s recovery from the growth-sapping pandemic was losing momentum.
“Latin America's growth rebound from the pandemic was strong but is poised to slow even before the war in Ukraine. After a sharp rebound in 2021, growth is returning to its pre-pandemic trend rate as policy shift slowing to 2.5% for 2022,” added Goldfajn.
Poverty and inequality remain key concerns as well given that the increase in inflation has an uneven impact on the population. The most vulnerable groups in the region are being hit hard by the increase in basic food and energy prices, while still struggling to recover from the economic impact of the pandemic.
“It will be equally important to implement measures that protect the most vulnerable. This will require strategies that focus on inclusive consolidation. What does that mean? Spending in specific programs health, education and public investment should be protected while implementing tax reform, such as strengthening passive income taxes to include those who can afford to pay. This will also bolster growth in an inclusive manner and help countries maintain fiscal sustainability,” said Goldfajn.
To watch the full press briefing, click here.